Non-Issuance of notice u/s 143(2) of Income Tax Act is not Curable Defect: ITAT quashes Assessment Order [Read Order]

The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT), quashed assessment order and observed that non-issuance of notice under Section 143(2) of the Income Tax Act, 1961 is not a curable defect. The assessee is a partnership firm engaged in film production. It filed its return of income on 27.11.2003 declaring total income of Rs.1,24,22,829/-.

The original assessment was completed on 17.11.2005 with an addition of Rs.4,11,133/-. Subsequently, it was noticed that the assessee made a wrong claim to the tune of Rs.1,50,00,000/- emanating from the agreement dated 01.04.2002.

Therefore, the assessment was reopened by issue of notice under Section 148 dated 18.03.2010 which was served on Mr. B.S. Murthy, Manager of the assessee on 26.03.2010. During the course of re-assessment proceedings, the Assessing Officer noted that the original assessment of the sister concern M/s Suresh Movies Film Distributors (SMFD in short) was completed Under Section.143(3) on 17-11-2005 on a total income of Rs.10,84,870/-. M/s. Suresh productions produced a film called “Nee Premakai” which was released on 01-03-2002.

As the Assessing Officer felt that the unpaid amount of Rs.1.50 Crores was not an allowable expenditure, therefore, he disallowed the same in the reassessment proceedings being excess liability claimed towards cost of acquisition of the rights of the exploitation of the film. The CIT(A) quashed the reassessment proceedings initiated by the AO and hence the Revenue is in appeal. A Two-Member Bench of the Tribunal comprising K Narasimha Chary, Judicial Member and RK Panda, Vice President observed that “In view of the above discussion and considering the fact that the original assessment was completed under Section 143(3) on 17.11.2005 and notice under Section 148 was issued after a period of 4 years from the end of the relevant A.Y and the reasons recorded nowhere shows any allegation by the Assessing Officer of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment.”

“Since the law is well settled that non-issuance of notice under Section 143(2) of the Act is not a curable defect and since in the instant case, the Assessing Officer has failed to issue the notice under Section 143(2) prior to finalising the re-assessment order, therefore, the impugned assessment order suffers from patent illegality and therefore, deserves to be quashed” the Bench noted.

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